If all else fails, Peter Thiel has an escape route.
The billionaire cofounder of PayPal has hedged himself against the collapse of society. His answer? New Zealand. Thiel purchased a five-hundred-acre sheep farm in South Island, a comfortable seven thousand miles away from his home in California. There he’s protected from crisis, pandemic, and a population increasingly on the brink—of what? That’s the worry.
He’s not alone. Drawn to the country’s six-to-one sheep-to-human ratio and neutral stance on just about everything, Thiel and his Silicon Valley cohort have contributed to a tenfold increase in applications for New Zealand’s “Investor Plus” visas—which require a three-year investment of over $6 million—from 2010 to 2018.1 LinkedIn’s cofounder Reid Hoffman estimates that half of his billionaire friends have apocalypse insurance. “Saying you’re ‘buying a house in New Zealand’ is kind of a wink, wink, say no more.”23
For those hoping to stay closer to home, $4.5 million will buy a “Survival Condo Penthouse unit” in a converted missile silo in Kansas. The unit boasts nine-foot-thick walls and military-grade security. Residents can schedule airport pickup on the Pit-Bull VX armored truck. At the silo, they can stroll in the dog park, work up a sweat on the climbing wall, or watch the end of times from the comfort of their own movie theater. One customer wrote, “I feel better knowing that I have a luxury survival bunker for my family if anything happens.”
For today’s wealthy, the new must-have is a way out.
It feels somehow appropriate that a corporation would aim to profit from the end of capitalism. Alexis de Tocqueville noted that Americans always “put something heroic into their way of trading.” He wrote, “I know of no country, indeed, where wealth has taken a stronger hold on the affections of men.”4
Unique in world history, America is a nation founded by corporations—two corporations, in fact:5 the Massachusetts Bay Company and the Virginia Company, both for-profit ventures before becoming political colonies. Half the passengers on the Mayflower were not Pilgrim church members but were conscripted by investors.6
Before thirteen colonies became one nation, seven hundred English shareholders became one company. A single share in the Virginia Company cost 12 pounds, 10 shillings—six months’ wages for an ordinary worker. For those willing to work seven years for the company in Virginia, the share was free.7
As the historian Bhu Srinivasan writes, those early American settlements were funded through private investment, “with the risks borne by private interests and the lives of men.”8
The lives of men indeed: After seventeen years and hundreds of supply ships, 85 percent of Virginia’s settlers had died.9 So King James I revoked the company’s charter in 1624, forcing Virginia to be ruled as a colony instead.
Those were inauspicious beginnings for a country that would win the Cold War 365 years later in the name of capitalism. And though those corporate beginnings have transmogrified into Thanksgiving school plays, the United States has always struggled with the morality of its economy. This is a country built off tobacco and slaves, fossil fuels and global finance.10 Corporations had legal personhood before women did.
Rutherford B. Hayes, president during the Gilded Age, wrote in his diary, “This is a government of the people, by the people, and for the people no longer. It is government by the corporations, of the corporations, and for the corporations.” The country’s history has always been an uncomfortable balance of private and public interests, of people and the corporations they create.
Capitalism is once again on trial. Pernicious inequality and catastrophic climate change. Global instability and plateauing growth. Decaying institutions and receding opportunity.
Inequality is at a postwar high. In Boston, the gap in life expectancy between those living in adjacent rich and poor neighborhoods is thirty-three years.11 Growth in urban and rural areas has diverged. Since 2010, the largest fifty-three metro areas have accounted for over 90 percent of the nation’s population growth.12 Half of rural counties have lost population since 2000.13 Across the country, only one in three Americans believes their children will “be better off financially than their parents.”14 Meanwhile, according to one survey of professionals, half of Americans don’t feel a connection to their company’s mission or get a sense of meaning or significance from their work.15
We often talk of stagnant wages but not what those wages can buy. Whereas the manufactured bread and circuses of fast food and flat-screen televisions have gotten cheaper, the things that give our lives dignity—education, fresh food, health care—have gotten much more expensive. If we were to adjust wage growth by a Consumer Dignity Index instead of the standard Consumer Price Index, we’d see that most people’s wages haven’t been stagnant; they’ve been in steep decline.
We’ve descended into a corporate-sponsored Brave New World, complete with a calcified caste system and the soma of cheap consumer goods and drugs—licit or illicit—to dull the pain. This is how the world ends: not with a bang but with a binge-worthy Netflix series.
Based on one 2020 study, 56 percent of people worldwide believe that “capitalism as it exists today does more harm than good in the world.”16 Only half of American adults under forty view capitalism favorably—down from two-thirds in 2010.17 Four in ten Americans say they would prefer living in a socialist country over a capitalist one.18 It’s all enough to make us ask: Can we save capitalism from itself? Should we?
The United States was born by the corporation, and it may die by it, too. Maybe Thiel isn’t crazy to want a way out.
Our most critical social and environmental challenges have been caused, in large part, by the explicit amorality of corporations. Our economy is dominated by the ideology that private vice makes for public virtue. And so our world is dominated by corporations that reflect no deeper purpose than profit. They embody no broader values than shareholder value. They are accountable to nothing but the bottom line.
Transforming our corporations will be hard. And we can’t fix all that is wrong with capitalism without changing government and individual behavior as well. But neither can we make real progress without addressing the lack of purpose, values, and accountability within our corporations.
Capitalists should want to fix corporations. Too often profit is confused with value, but they are not the same thing. Profit is what happens today. Value is the long-term prosperity driven by strong customer, employee, and supplier relationships; positive community involvement; sustainable production; and cooperation with government in problem solving. We will make our corporations more valuable when we focus them on these things.
Furthermore, capitalists should want to fix corporations because capitalists are citizens, too. Before the pandemic, corporate profits were higher than ever, but workers, society, and the planet still suffered.19 This can’t go on forever, and it won’t. Capitalists, in their capacity as citizens, have an interest not just in avoiding the guillotine but also in living in a more equal, healthy, and sustainable world. That requires asking fundamental questions about our corporations: What is their purpose? What are they capable of producing for society?20
“Hegel predicted that the basic unit of modern society would be the state … Lenin and Hitler that it would be the political party,” wrote John Micklethwait and Adrian Wooldridge in their book The Company: A Short History of a Revolutionary Idea. “Before that, a succession of saints and sages claimed the same for the parish church … they have all been proved wrong. The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world.”
Many critics of capitalism focus almost entirely on political philosophy and public policy. Thomas Piketty’s Capital in the Twenty-first Century has more index entries on the French Revolution than it does on corporations. We risk missing a fundamental fact: that capitalism today is made up of corporations. Big corporations.
Think of how you spent your morning. You may have woken up to a tune on your iPhone (Apple, the number 4 largest corporation in the United States), with cell service powered by AT&T (number 9).21 Your morning medicine may have come from CVS (number 7), distributed by McKesson (number 6), and paid for by UnitedHealthcare (number 5). You may have driven a GM (number 10) car to work—insured by Geico (owned by Berkshire Hathaway, number 3) and fueled at ExxonMobil (number 2). On the way, you may have passed a Walmart (number 1) and a Whole Foods (owned by Amazon, number 8). And that’s it, the top ten—even before you check Google in line at Starbucks while taking out your Bank of America credit card.
As the nineteenth-century historian and statesman George Bancroft put it, “Commerce defies every wind, outrides every tempest, and invades every zone.”22 What began as a formal way to organize people and capital around a common cause has become Wells Fargo and Facebook, the daily nine to five and the McDonald’s Dollar Menu. The marketplace—capitalism incarnate—is not some place we go. It’s the air we breathe.
The first three chapters of this book are the story of fiduciary absolutism—a distorted and extreme version of fiduciary duty that binds corporate leaders to chasing short-term profit.
Corporations are a great modern multiplier of human effort. As we’ll see in chapter 1, they have power for both good and ill. They can heal the sick, feed the hungry, and house the homeless. But they are also enmeshed in all our worst social and environmental problems. Inequality, disease, pollution—all inextricably bound up with our largest corporations. If there is something broken about capitalism today, there must be something broken at our largest corporations.
Corporations are capable of achieving so much more than they do today. Many are failing their employees, customers, communities, and other stakeholders. They’re even failing their shareholders—who are better served when corporations focus on creating long-term value. As we’ll see in chapter 2, that requires commitment to improving the lives of your customers, building trust with your employees, sustaining your community, stewarding your environment, and working collaboratively with the government.
Profits at our public companies may have set records, but society still suffered. This is usually blamed on shareholders. In chapter 3, we’ll see how most shareholders would benefit far more if all corporations were transformed into long-term, stakeholder-oriented companies driven by a deeper purpose.
The next four chapters show reformers struggling against the conflicting demands of earning a profit for shareholders and doing good for society.
Many of the current reforms risk becoming hollow victories. In chapter 4, we’ll see Goldman Sachs’ 10,000 Women initiative, Coca-Cola’s partnership with the Special Olympics, and Hyundai’s funding for cancer research. Nearly nine in ten corporations in the S&P 500 now issue sustainability reports, up from only 20 percent in 2011.23 These are all good efforts that promise progress. But are they enough?
The New York City Pension Fund has divested itself from oil and gas companies, joining more than a thousand other institutions representing $11 trillion in assets.24 That feels like a victory, but in chapter 5 we’ll ask: Does it matter? Does divestment work?
Impact investing has become a $500 billion industry—an industry we’ll examine in chapter 6.25 The United Nations announced that $80 trillion is now covered by its Principles for Responsible Investment (PRI).26 But at the same time, two-thirds of Americans don’t believe the financial system benefits the economy today.27 Our thousand largest corporations are owned 73 percent by institutional investors—mostly mutual funds concerned more with quarterly earnings than with long-term prosperity.28 As one political scientist summarized, “Our economy is dominated by property unowned by natural individuals.”29 Can our financial system be saved by socially responsible investors?
And all the while, CEOs’ pay has increased by 940 percent since 1978 while S&P 500 companies spent the last decade buying back $4 trillion of their stock—$4 trillion that could have been invested in the workforce.3031 In chapter 7 we’ll ask: Why can’t government just force our corporations to be good?
The final two chapters detail a different vision, one we’ll call citizen capitalism. Getting there will require one thing above all else: accountability. Accountability for the corporations we create; accountability to all the stakeholders they touch; accountability for the world we will leave our children and grandchildren; accountability, ultimately, to one another.
In chapter 8 we’ll offer our own proposal: corporations built around a deeper social purpose, held accountable to that purpose, and rebuilt to align their purpose with their prosperity. In chapter 9, we’ll see how buyers, workers, savers, and voters are already influencing corporations to better reflect their values.
Our book isn’t a naive plea for corporations to be more responsible; it’s an unsentimental blueprint for how to build an economy that generates prosperity without peril. The journey starts with corporations and, in the end, depends on all of us.
We’re not academics or journalists critiquing capitalism from the sidelines. We’ve lived in its engine room, investing billions of dollars and working across six continents and a dozen industries. We earned our MBAs from schools where the virtues of capitalism are recited chapter and verse. But over the last half decade, we’ve worked at the forefront of reform, helping to launch a social impact investment fund that has invested hundreds of millions of dollars in purpose-driven companies focused on benefiting society. We can debunk the myths of capitalist reform from the inside.
We’ve come to the conclusion that we need to ask more of capitalism. No one minds when great corporations serve their consumers well and keep some of the gains for their shareholders—that’s the American way. What people mind is the economics of extraction, the kind of capitalism in which corporations maximize their short-term profits at any cost.
Some people are ready to tear the whole of capitalism down. The Icelandic rock band Hatari (“Haters”) has been described variously as “IcePop,” “pseudo-fascist cyborgs,” and a “bondage techno performance art group.”3233 It announced in 2018 that it was disbanding because it had failed to meet its stated goal of ending capitalism but came out of retirement in 2019 to enter the popular Eurovision music competition. It used its international recognition to challenge Israeli prime minister Benjamin Netanyahu to glima—described as “Icelandic trouser-grip wrestling.” If Hatari won, it would get “the first ever Hatari-sponsored liberal BDSM colony on the Mediterranean coast.” If it lost, the Israeli government would get “full political and economic control of South-Icelandic Island municipality Vestmannaeyjar.”
Hatari self-consciously represents the extremes of anticapitalism, but there are others with a more staid—though no less ambitious—approach. The activist and environmentalist Naomi Klein suggested that climate change provides a great opportunity to end capitalism:
Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.
Only one in four people trusts corporate CEOs to right society’s wrongs, and only one in five trusts them to be truth-tellers and overall ethical.34 Many businesspeople don’t even trust themselves. In one survey of business school students, only 60 percent trust corporations to do good things for people in the long run.
It’s easy to forget why capitalism is worth saving. When colonists arrived in Massachusetts, they initially agreed to grow their food collectively. Unfortunately, that method of production didn’t work. It foreshadowed a common joke about socialism: “They pretend to pay us, and we pretend to work.”35 And so the colonists privatized. As the governor of Massachusetts explained, “This had very good success, for it made all hands very industrious.36 … The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.”
Since then, capitalism’s 250-year report card reads surprisingly well.
During the three millennia preceding 1750, economic growth per person averaged around 0.01 percent per year.37 Forget doing better than your parents; for most of human history, you couldn’t do better than your ancestors. Since 1750, however, the world’s economic output per person has skyrocketed by more than thirty-seven times.38 Just since 1990, we have lifted a billion people from poverty.39 That didn’t happen by accident; it happened by capitalism.
“I weigh my words,” said Nicholas Murray Butler, the president of Columbia University for most of the first half of the twentieth century, “when I say that in my judgment the limited liability corporation is the greatest single discovery of modern times, whether you judge it by its social, by its ethical, by its industrial or, in the long run … by its political, effects. Even steam and electricity are far less important than the limited liability corporation and would have been reduced to comparative impotence without it.”40
Capitalism has created spectacular economic growth, eradicating disease and giving billions of people a chance to live a life beyond meager subsistence in the process. For all its harms, we must never forget that our economic system has also created tremendous prosperity. In 2019, Darren Walker, the head of the Ford Foundation, took a balanced view in a letter entitled “In Defense of Nuance.” “We can see how our capitalist systems have broken down, while also appreciating that markets have helped reduce the number of people around the globe who live in poverty,” he wrote. “… Within this kind of rationality—within this kind of complexity—I believe we can find reason for hope.”
A world without corporations, free markets, and private ownership wouldn’t restore balance to our economy; it would destroy the tools of progress. Capitalism has changed over time, but it is always marked by private ownership of most assets, competition among companies, and prices adjusted to allocate scarce resources. Where prosperity exists in our world today, it can be traced back to this potent combination. Even the relatively socialist countries of northern Europe are still clearly capitalist by this standard.41
Nonetheless, the test of capitalism is not its past track record but its ability to meet our new and pressing social and environmental challenges. Many corporations today are too obsessed with creating short-term profit for shareholders to deliver the changes society is demanding. Fortunately, we don’t need to change every one of America’s 6 million companies. But we do need to change the Fortune 500. According to Fortune.com, these companies represent two-thirds of US GDP, $1.1 trillion in profits, $13.7 trillion in revenues, $22.6 trillion in market value, and employment for nearly 30 million people around the world.42 If we are going to change the course of our economy, it is these very corporations that we must change. In the fight to save capitalism, this will be the battlefield.
Monopoly’s inventor, Elizabeth Magie, had a point to make. She wanted to illustrate the dangers of unfettered capitalism at a time when Gilded Age inequality roughly matched today’s.43 Unlike the version we use today, Magie’s original game in 1903 had two sets of rules.44 The first is the one we know: winning requires amassing a fortune by forcing others into bankruptcy. But in Magie’s second iteration, the goal was different: instead of players bankrupting one another for individual benefit, they worked together to increase all of their wealth. The goal was to collaborate. Magie suggested playing the two versions in succession. That way, players would see the virtues of collective effort and the dangers of the alternative.
Ultimately, her hopes were dashed. After Parker Brothers bought the game in 1934, it marketed only the bankruptcy version. Parker Brothers thought it would sell better.
That’s capitalism in the United States today—except with real money and real consequences. It’s like the joke about the Planters mascot, Mr.45 Peanut: Is there anything more capitalist than a peanut with a top hat, cane, and monocle selling you other peanuts to eat? Corporations today act as if their sole and only purpose is to maximize short-term profits. The global pandemic revealed just how fragile our economy is. Never has it been more important to reimagine the corporation’s role in society.
Through the United States’ industrial period, paintings often depicted “Progress” as “a steam-powered locomotive, chugging across the continent, unstoppable.”4647 Today, we fear, capitalists are asleep at the switch, with dire consequences. When Benjamin Franklin sat at the Constitutional Convention, he often stared at the sun carved into the back of George Washington’s chair. He would wonder to himself whether it depicted dawn or dusk. We might be forgiven for wondering the same thing about capitalism today. At the end of the successful convention, Franklin said, “Now at length, I have the happiness to know that it is a rising and not a setting sun.” We hope the same for capitalism.48
The legal scholar Lynn A. Stout once wrote, “We have been dosing our public corporations with the medicine of shareholder value thinking for at least two decades now. The patient seems, if anything, to be getting worse.” We’ve played the first version of Monopoly long enough. It’s time we tried the second.